Thank you both for the responses. I watched the video and came home from work ready and hoping to find some frayed wires. Before I started I tried to put the top down automatically and I was amazed that it worked!
Then I held my breath and tried to close the roof, and that worked too!
So I'm temporarily relieved that the top is working, but still knowing there's a problem in there some place.
Any thoughts on other things to review or test ?
For what it's worth I saw no signs of wear and tear on the wiring harness
Check the trunk wiring harness. Affectionately known as the "elephant trunk" - it carries a number of ground and positive wires from the body into the trunk. It is a notorious weak point as the wires get frayed inside the plastic insulation and strands break, eventually the wires snap in two. Causes all kinds of intermittent trunk electrical issues. It is not unique to the convertible - it affects many BMW vehicles including e90, e46 and e39 - it does however cause a unique issue for the e46 vert opening and closing.
I owned an e46 vert for 15 years and had to repair this loom twice in that time. First time the exact same thing caught my attention - top failed to latch half way up. The issue became intermittent. Why? The trunk lid has to report "closed" for the roof to operate. The circuit for the trunk closed runs through this loom. The vibration of the roof closing or opening or the extent of the frayed wires intermittently reports the trunk "open". If the CVT is notified the trunk is open it stops opening or closing the roof.
Unfortunately most of the really good images from a decade ago are gone now thanks to Photobucket
http://forum.e46fanatics.com/showthread.php?t=664980
You do not need to cut the rubber elephant trunk to repair - you do need to remove the trunk lid carpet and disconnect the wires in the trunk lid to give some more slack. Pull the elephant trunk out at both ends, pull on the disconnected wires to get some slack and splice in new wires on the slack. For my last repair (I've done this on 4 vehicles) I cut on either side of the elephant trunk (about 16" splices) so the soldered connections were not in the elephant trunk as it barely has enough width for the existing wires and you don't want the flexing on the solder joints.
Lastly - use high grade replacement wires - I have BMW wire harnesses from stripped down cars so I match up the colours and gauge. If you use a cheap wire it will only fail faster. - Leave slack in the elephant trunk so the wires can move as it flexes. too rigid and they will break easier.